The Owners Strata Plan 58020 v The Kraftsmen Property Maintenance Pty Ltd

The Owners Strata Plan 58020 v The Kraftsmen Property Maintenance Pty Ltd - [2023] NSWCATCD 178 - NSWCATCD 2022 case summary — Zoe

THE EVIDENCE AND SUBMISSIONS RELIED ON BY THE PARTIES

The documents relied on by the parties were primarily contained in a "Court Book" marked exhibit A, a "Supplementary Court Book" marked exhibit E and a "Further Supplementary Court book" marked exhibit F.
An open offer made by the applicant was marked exhibit B.
The evidence relied on by the applicant comprised a statement of Anne Xuereb, a committee member, and the acting secretary of the applicant's owners corporation (which statement was read subject to rulings in respect of paragraphs 5, 6, 9,18, 23, 24, 25 and 29) and reports of Mr Joseph Natoli, engineer, dated 15 November and 2021 and 17 August 2022.
The evidence relied on by the respondent comprised an affidavit of Matt Brown, director of the respondent dated 18 March 2023 and a report by Mr Con Thanopoulos, engineer dated 24 May 2022. A report of a Mr Colin Cass, building expert, was not relied on by the respondent.
Mr Brown's affidavit was read noting that the applicant advised that there were issues with paragraphs containing opinion, conjecture and submissions, but that it was content for the affidavit to go into evidence subject to weight.
The matter was first listed for hearing on 6 April 2022.
Ms Xuereb was cross examined and in re-examination photographs of damage to a gate (the timing of the repair of which was relevant to a question of whether the claim was made in time) were tendered and marked Exhibit C and Exhibit D. Mr Brown wasn't required for cross examination.
A joint experts report which had been directed by the Tribunal had not been prepared, and the matter was stood down for that to be done. A joint report was then prepared and marked MFI1.The respondent contended that the applicant's expert was seeking, in that joint report, to introduce new evidence that took it by surprise and that it consequently needed to get a report from an engineer.
Ultimately orders were made by consent that provided for the hearing to be adjourned, the respondent to file and serve an engineering expert report, the applicant to file and serve any expert report in response, that the time for the parties to comply with the previous direction for a joint experts report be extended to 27 July 2022 and that the question of costs thrown away by the adjournment is reserved to be determined at the hearing.
A further hearing date of 14 September 2022 was vacated on the applicants application because of the unavailability of its expert witness.
The matter was then listed for further hearing on 27 February 2023, at which time the parties engineering experts, Mr Natoli for the applicant and Mr Thanopoulos for the respondent, gave evidence.
A document headed "Joint expert's report" dated 20 February 2023 was marked exhibit G. In the light of concerns raised by the applicant that the report was prepared without Mr Natoli's involvement and that he had not had time to amend it, I have only had regard to the joint report as an aide memoir.
Following the further hearing, directions were made for the filing of an agreed transcript on 13 March 2023, for the applicant to file and serve its written submissions by 13 March 2023 and for the respondent to file and serve its written submissions by 20 March 2023.
The time for the filing of written submissions was thereafter extended on the parties' application and the applicants written submissions were filed on 29 May 2023 and the respondent's on 21 June 2023.

[5]

Factors relevant to whether the application was brought in time

The applicant claims that, in breach of statutory warranties implied pursuant to s 18B of the HBA (implied warranties), the work was not done with due care and skill and in accordance with, and in compliance with the HBA and any other law (more particularly identified by the applicant as "applicable codes and standards") and the work and materials were defective and were not reasonably fit for purpose
Section 18E of the HBA relevantly provides that: 1. Proceedings must be commenced before the end of the warranty period for an alleged breach. 2. The period starts on completion of the work to which it relates. 3. The warranty period is six years for a breach that results in a major defect in residential building work, or two years in any other case.
Pursuant to s 3B of the HBA "Date of completion of residential building work", which applies both to determine when completion of residential building work occurs for the purposes of the Home Warranty Insurance Scheme and in the HBA more broadly (Subsection (5); The Owners Strata Plan 64757 v Sydney Remedial Builders Pty Ltd [2023] NSWSC 1127 (18 September 2023) [14]), subsection (1), the completion of residential building work occurs on the date that the work is complete within the meaning of the contract under which the work is done.
Consideration of whether the application was brought within time, involves a consideration of the following.
Firstly, when the work was complete within the meaning of the contract. That involves a consideration of whether work to repair a damaged gate (which was not of itself part of the contractual scope of work) is work to repair damage caused by the respondent when performing the contract work and if so, having regard to the contract, whether that means that the work was not completed until the gate repair work had been completed. If so, then provided the alleged defective work is a major defect, then the application is within time.
Secondly, if the Tribunal accepts that the work was not completed until about 17 July 2015, whether any of the alleged breaches of the Implied warranties have resulted in a major defect. If not, then the application is not within time as it was made more than two years after the work was completed.
Clause 8 of the contracts "completion of work" states: The work will be complete when the contractor has finished the work in accordance with the contract documents and any variations, there are no omissions or defects that prevent the work from being reasonably capable of being used for its intended purpose, any damage of the kind referred to in Clause 19 has been repaired, and all rubbish and surplus material has been removed from the site. …
Clause 19 states: the contractor shall be liable to the owner for any damage to curbs, gutters, paving, underground services, drains, structures or other property on the site caused by the negligence or the fault of the contractor, any employee or subcontractor of the contractor as a consequence of carrying out the work.
The works commenced on about 6 April 2015.
Having regard to the evidence of Anne Xuereb, and noting that there was little if any evidence that supported a finding that the gate was damaged by anyone other than an employee or contractor of the respondent, I am satisfied that: 1. The gate was damaged in and around the time the work was being performed. 2. That final payment for the work was held back by the respondent until such time as the gate had been repaired. 3. The respondent performed work to repair the gate in around 17 July 2015.
Further, I am satisfied that it is more probable than not that the damage to the gate was caused by the negligence or default of the respondent or an employee or subcontractor of the respondent as a consequence of carrying out the work.
The damage to the gate was therefore damage of the kind referred to in clause 19 of the contract.
It follows that having regard to Clause 8 of the contract, the work was not completed until such time as the damage to the gate had been repaired. The fact that the repair of the gate, as alleged by the respondent, was not part of the contractual scope of work, does not matter.
The repair of the gate was completed on about 17 July 2015.
Having regard to my findings above, I am satisfied, that provided any alleged breaches of the warranties implied by s 18B of the HBA have resulted in a major defect in the residential building work, that the application was made within time.
If, however, any breaches (if found) did not result in a major defect, then the application was not filed within time.

[6]

Factors relevant to whether there is major defect

A major defect is defined at S18E of the HBA Act to mean: (a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause - (i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or (ii) the destruction of the building or any part of the building, or (iii) a threat of collapse of the building or any part of the building, or (b) a defect of a kind that is prescribed by the regulations as a major defect, or (c) the use of a building product (within the meaning of the Building Products (Safety) Act 2017) in contravention of that Act.
A major element of a building means: (a) an internal or external load-bearing component of a building that is essential to the stability of the building, or any part of it (including but not limited to foundations and footings, floors, walls, roofs, columns and beams), or (b) a fire safety system, or (c) waterproofing, or (d) any other element that is prescribed by the regulations as a major element of a building.
The test for a major defect is in two parts.
Firstly, whether there is a defect in a major element of a building attributable to one of specified matters. Secondly, whether it has caused or is likely to cause the inability to inhabit or use part of the building for its intended purpose or the destruction of the building or any part of the building or a threat of collapse of the building or any part of the building. Ashton v Stephenson [2020] NSWCATAP 233 at [63].
The applicant in summary says that the claim is "for waterproofing defects" and is therefore a major defect within the meaning of s 18E (4) HBA and that the application has therefore been made in time.
Mindful that the applicant says that the claim is for waterproofing defects, in the event that I find that there has been a breach of the HBA and that it was in respect of a major element because it involved "waterproofing defects" for there to be a major defect, I must also be satisfied that that the defect has caused or is likely to cause: (1) The inability to inhabit or use the building (or part of the building) for its intended use; or (2) The destruction of the building or any part of the building; or (3) A threat of collapse of the building or any part of the building.
Relevantly: 1. A claimant does not need to prove that the major defect is presently manifested or dire. 2. Section 18E (4) does not require any degree of imminence. 3. What is required, is that is that a defect has caused or is likely to cause in the future the consequences set out in s 18 (4) (i) to (iii). 4. Evidence from the homeowners is not necessary nor is the likelihood of a major defect causing the consequences in s 18E (4) (i) to (iii) a matter about which a homeowner may be capable of giving evidence, and such evidence is better, or even exclusively, the subject of expert opinion. 5. Lay evidence may however still be of assistance, for example, in respect of the absence of elements of the work, the location of staining, and the fact of water ingress. 6. Whether a particular defect is likely to cause the relevant consequences in the future must also be evaluated in the context of how long the defect has existed and whether the defect has resulted in any damage that might indicate the likelihood the premises will become uninhabitable or destroyed in the future by reason of the defect. Ashton v Stevenson; Stevenson v Ashton [2020] NSWCATAP 233 (9 November 2020) at [65] to [69] referring to Stevenson v Ashton [2019] NSWSC 1689 at [74] to [76]. 1. Evidence is however required from which it can be concluded the defects will likely cause the specified outcome. 2. The nature, location and extent of the defects would also be relevant in assessing the likelihood of the prescribed outcome. 3. Expert evidence assessing the likelihood of the particular defects causing the prescribed outcome would be relevant and must be of a type which is "comprehensible and reach conclusions that are rationally based" in order to "furnish the trier of fact with criteria enabling the evaluation of the validity of the expert's conclusion". Ashton v Stevenson; Stevenson v Ashton [2020] NSWCATAP 233 (9 November 2020) at [134] and [135].
In respect of whether there has been a breach of any implied warranty that has resulted in a major defect, the applicant primarily relies on the evidence of Mr Natoli, and the respondent primarily relies on the evidence of Mr Thanopoulos.

[7]

Defect 1 - Water ponding in balcony screed and on the surfaces of the balconies

Mr Natoli gives evidence (using a photo at CB 128) of observing water ponding on the surface of tiles of Unit 13 and of measuring the moisture content at joints being higher than at the tiles of the balcony for Unit 14. He also gives evidence that having regard to high moisture readings in the tiling of the living area of Unit 14., that the living room as been affected by capillary and wicking action and opines that substantial volumes of water is pooling in the depth of screed below the tiles.
In Mr Natoli's opinion the claimed ponding of water in the screed "is a breach of the NSW Guide to Standards and Tolerances 2017 -14.7" and the water ponding on the balcony "is a breach of NCC2014 Volume One, Part FP1.1, FP 1.2, FP1.3 (surface water)" and (as set out in the joint report from CB 380) that water pooling in the sand / cement mix (said to be caused by a sponge like sand / cement mix being used and a lack of reinforcement in the mix) will cause additional loading which may cause detrimental effects to the concrete slap and waterproofing membrane.
Mr Natoli also commented in his report that the presence of water pooling to the full depth of the screed will dramatically shorten the life of the membrane installed below the screed, and that should the membrane fail, then at the point of failure, the potential for the tons of water that (at times) pools below the tiles on each of the balconies after heavy rain events would enter the premises below causing substantial damage and an associated financial loss to the owners, and that should there even be a minor failure of the membrane, the substantial volume of water that pools beneath the screed would certainly saturate the reinforced slab beneath the terrace which would cause swelling of the saturated slab and rusting of the steel slab reinforcing encased in that slab.
Mr Thanopoulos gave evidence that there was no ponding evident when he attended the Property and disputes that there has been a breach of the Guide to Standards and Tolerances (which he says is only to be considered as a guide) and the Code as referred to by Mr Natoli.
In his opinion there is no possibility of a balcony collapse because of water being held in the screed and further says that although it is now a requirement to have two layers of waterproofing (that is one above the screed) it was not a requirement at the time, and the retention of water in the screed is not a defect.
In responding to Mr Natoli's opinion set out in the 22 April Joint report regarding the risk of additional loads caused by the screed holding water, Mr Thanopoulos goes in to some detail at (CB 450) comparing the dry and wet loads and the effect of a saturated load and opines that the "load resulting from a saturated floor screed constitutes only a fraction of the load capacity of the reinforced concrete balcony slap which is 300Kg per m 2". I accept that evidence.
Further, at the hearing, Mr Natoli said in respect of any additional weight because of the saturation of the screed, to the effect that we're not expecting at any stage that there would be a collapse, what he is talking about is additional loads causing unnecessary or additional deflections possibly in the slab, and that slabs deflect just normal live loads and dead loads, they're designed to deflect and their designed to be stable. And in a certification dated 10 June 2020 in respect of the instillation of a spa bath to the roof top deck of Unit 13 Mr Natoli also said, "I have recently inspected the existing roof decking area and found no evidence of any cracking".
I am satisfied, having regard to the evidence of Mr Thanopoulos that the slab is designed to hold water that is retained in the screed, and I am not satisfied that any additional load placed on the screed from it becoming saturated could have a detrimental effect on the underlying concrete slab, and in the absence of evidence as to the extent of any deflection caused by a saturated screed load, and how any deflection could compromise or detrimentally affect the waterproof membrane, I am also not satisfied that any impact on the slab by any saturated screed load could cause the waterproof membrane to be impacted.
I am fortified in that view, because as at the last date of the hearing, it was some seven and a half years since the work was performed, and there was no direct evidence that the concrete slab nor the membrane had been damaged nor detrimentally affected. Nor was there any evidence of any testing having been performed that identified any deflection in the slab or damage to the membrane.
In my view the evidence of pooling depicted in the photo relied on by Mr Natoli is very minor and there was no other evidence from anyone observing any pooling on the balcony. Further, putting Mr Natoli's moisture readings to one side, nor was there any evidence of water ingress to the living area of unit 14.
I further note that there was no evidence from any of the owners as to anyone being prevented from using the building or any part of it for its intended use.
I am however satisfied that the fact of the ponding on the surface of the tiles observed by Mr Natoli, although minor, is a defect.
I am not however satisfied that water ponding or being trapped in the screed itself in the screed itself is a defect involving a breach of the warranties implied by s 18B the HBA.
In respect of the very minor ponding of water and the ponding of water in the screed, even if a defect (which I am not satisfied it is) that has resulted in a defect in a major element (claimed to be waterproofing), for the reasons et out above, I am not satisfied that it has caused or is likely to cause the inability to inhabit or use part of the building for its intended purpose or the destruction of the building or any part of the building, or a threat of collapse of the building or any part of the building.
I am therefore not satisfied that the alleged Defect 1 is a major defect.

[8]

Defect 2 - Tiling the balconies using thick, low ratio of sand cement screeding

Mr Natoli notes that the respondent installed a waterproof membrane on top of the existing slab on the terraces / balconies of units 13 and 14, and then installed ceramic tiles on top of a screed with a porous cement mix used as grout between the tiles, and says to the effect that: 1. The screed below the tiles is predominantly sand, with a low ratio of cement in the mix. 2. The low ratio of sand/cement mix has failed to maintain the bonding between the mix and the membrane. 3. The screed has become dynamic and is causing drain blockages on both balconies. 4. He observed that the central drain on the eastern balcony of Unit 13 became blocked by a gritty and sandy obstruction that reduced its capacity to around 20 percent of the original drain capacity. 5. That an inspection revealed that a sandy type of barrier was forming a blockage at the elbow at the base of the drain and debris had been caught by the build-up. 6. The drain had to be water blasted a number of times to clear the blockage.
Mr Thanopoulos disagreed. He gave evidence that there was a gooey, very sticky substance and opined that it resulted from something other than the screed.
The respondent submits that the applicant's claim that the screed mix was filling the drain does not make sense. It says that the applicants claim requires the sand/cement screed mix to rise above the tiles and then be washed into the drain, but there is little evidence of the sand screed mix sitting on top of the tiles. The respondent submitted that the more likely cause of the substance in the drains was the pot plants on the terrace.
Consistent with the respondent's argument, I note that there was no evidence of the screed mix being observed on top of the tiles. Nor was there evidence of it having been observed flowing into the drain.
Noting that the alleged defect is said to arise because of the blocked pipe, in my view, it is also relevant that there was no lay evidence of the pipe having become blocked on any other occasion since the work was completed and the blockage was able to be remedied by blasts of water.
Further, there was no evidence of precisely what the mix was, nor what it should have been.
I am therefore not satisfied that the that the sand / screed mix that was applied involved a breach of the implied warranties.
Even if it did, given that the effect of the alleged defect is that a pipe was blocked to 20 per cent of its capacity, that there was no evidence of it having been blocked on a previous occasion, and the fact that it was remedied by blasting it with water, I am not satisfied that it related to "waterproofing" and therefore a major element, and even if it was, that it has caused or is likely to cause the inability to inhabit or use the building for its intended purpose or the destruction of the building or any part of the building or a threat of collapse of the building or any part of the building.
I am therefore not satisfied that the alleged Defect 2 is a major defect.

[9]

Defect 3 - Efflorescence in the grouting and tile faces

Mr Natoli's report gives evidence of observations of efflorescence which he notes commonly occurs when salt crystals in cement grouts or adhesive are carried upwards by moisture, and that as the moisture evaporates when it reaches the surface, it can leave behind the salt deposits.
He says that the efflorescence is a result of water ponding and being trapped inside the screed when the full depth of the screed is saturated.
In his view, water then emerges onto the tile surface and the saturated tile surface makes efflorescence occur more frequently. He further opined to the effect that the presence of the efflorescence caused by water ponding inside the screeding layer is a breach of section 14.8 of the New South Wales Guide to Standard and Tolerances, which states: Calcification or effloresce… that appears in the mortar joints of the deck or balcony tiling, may be considered a defect if it is due to defective or missing flashings, membrane, a damp proof course DPC or faulty design and needs to be investigated to identify the cause. Activities of others, such as owners watering plants, may also contribute to the efflorescence, which may not be attributed to the work of the builder
Mr Thanopoulos notes to the effect that that the above is a guide and does not in any event state that the existence of efflorescence is a defect.
Mr Natoli further says that the efflorescence is caused by a failure of the respondent: 1. in respect of variously identified standards (without there explaining the relevant provision or how it was breached); 2. to reinforce the tile bed; 3. to create required expansion joints; and 4. to create perimeter expansion joints.
Mr Natoli did not however identify how the lack of reinforcement, if in fact required, has caused the efflorescence, and an alleged defect of failing to install expansion joints was withdrawn at the hearing.
Mr Thanopoulos notes that the purpose of reinforcement is to minimise cracking of the screed because of drying shrinkage and is recommended when the thickness exceeds 50mm. He notes however that the relevant (AS 3958.1-2007) is a guide and reinforcement to control drying shrinkage in floor tile screed should be used when screed thickness exceeds 70 mm and that having regard to the thick ness of the screed observed in photo 2 of his report at the balcony of Unit 14 is of a thickness where reinforcement was not required.
Although noting that the thicker screed could cause some additional calcification, he indicated that this (i.e., the calcification) was an aesthetic detriment.
The applicant submitted that Mr Thanopoulos did not provide an opinion on the lack of reinforcement for a substantial screen depth of between 100 mm and 140 mm. Noting that submission, I was not however taken to any direct evidence as the thickness of screed nor how reinforcement would have reduced efflorescence.
The respondent submitted that there is no requirement for such reinforcement and that the lack of reinforcement has no bearing on the alleged defect or efflorescence in the grouting and tile faces and that, in respect of Unit 13, that the extent of efflorescence was caused by a lack of cleaning or maintenance by the owner.
My understanding of the applicant's case is that it is not alleged that the existence of "Efflorescence in the grouting and tile faces" of itself is a major defect, but that the amount of efflorescence is greater than it should be, because, according to Mr Natoli, the full depth of the screed becomes saturated.
Because the fact of the existence of efflorescence is of itself not a defect, and my finding that the retention of water in the screed is not a defect, and for the reasons set out above, I am not satisfied that the extent of the efflorescence observed in the photos has been caused by defective work or a breach of the implied warranties.
Even if I were satisfied that the existence of the efflorescence or the extent of the efflorescence was the result of breach of the implied warranties, I am not satisfied that it is a waterproofing defect as opposed to say a tiling defect, and more significantly, I am not satisfied that it has caused or is likely to cause the inability to inhabit or use the building or part of it for its intended purpose, or the destruction of the building or any part of the building, or a threat of collapse of the building or any part of the building.
I am therefore not satisfied that the alleged Defect 3 is a major defect.

[10]

Defect 4 - Leaking of water from balcony of unit 14 to the hallway of unit 10

The parties submissions' did not identify any direct evidence of the leak into unit 10.
This alleged defect is raised by Mr Natoli in the Joint report document dated 6 April 2022 in respect of the load placed on the slab by the extra weight of water retained in the screed.
As noted above, in Mr Natoli's opinion, the extra loading due to the water ponding (in the screed) potentially causes damage to the membrane and cracking to the concrete slab due to further deflection of the slab and that the loading for the balcony due to water ponding over an area in excess of 90sqm (for each balcony)(from the 100mm wet "sponge like" screed) is not a prescribed loading for a balcony in accordance with AS 1170, so the leakage from Unit 14 down to Unit 10 could be due to cracking of concrete slab and damage of the waterproof membrane of the balcony.
Mr Natoli also commented at paragraph 6 of his report, that the presence of water pooling to the full depth of the screed will dramatically shorten the life of the membrane installed below the screed, and that should the membrane fail, then at the point of failure, the potential for the tons of water that (at times) pools below the tiles on each of the balconies after heavy rain, events would enter the premises below causing substantial damage and an associated financial loss to the owners, and that should there even be a minor failure of the membrane, the substantial volume of water that pools beneath the screed would certainly saturate the reinforced slab beneath the terrace which would cause swelling of the saturated slab and rusting of the steel slab reinforcing encased in that slab. Mr Natoli says that this is a major defect.
Although not determinative of whether there has been a breach of the warranties and if so whether it has caused a major defect, I note that there is no direct evidence of actual cracking of the concrete slab or of damage to the waterproof membrane above the slab, and as noted above, in his certification on 10 June 2020 in relation to the instillation of a spa bath on the roof of unit 13, said that he had recently inspected the existing roof decking and had found no evidence of any cracking.
Further, Mr Natoli gave evidence at the hearing that "… but yeah, the main thing was that the additional load what I believe is with the additional weight of the screed and the saturation of the screed is we are not expecting at any stage to collapse as Mr Thanopoulos said, we are talking about additional loads causing unnecessary or additional deflections possibly in the slab itself. Some slabs deflect just normal live loads and dead loads, they are designed to deflect, and they are designed to be stable…".
Further, I was not taken to evidence identifying the extent of the leak nor any testing nor investigation having been performed to identify the source of the leak or whether the waterproof membrane for the Unit 14 balcony has failed, and as noted above, I have accepted Mr Thanopoulos' evidence comparing the dry and wet loads and the effect of a saturated load and his opinion that the "load resulting from a saturated floor screed constitutes only a fraction of the load capacity of the reinforced concrete balcony slap which is 300Kg per m 2".
In the light of Mr Thanopoulos' evidence as to the impact of a saturated load on the slabs load capacity, the lack of any direct evidence as to the extent of the leak into unit 10 or where the leak originates from, or that the slab has cracked or that membrane is damaged and the lack of any invasive testing (that may have been able to be performed) to establish the source of the leak and whether the membrane had been damaged, I am not satisfied that any leaking of water into unit 10 is the result of a breach of any implied warranties or defective work by the respondent.
Even if there has been a leak into unit 10 that arises in some way from a breach by the respondent of the implied warranties, because of the evidence of Mr Thanopoulos in respect of the capacity of the slab to withstand any additional load caused by a saturated screed, the lack of any direct evidence of any cracking or deflection in the slab nor any damage to the waterproof membrane, and because of the very minimal evidence, if any, of leaking into unit 10, I am not be satisfied that any breach of the implied warranties, has caused or is likely to cause the inability to inhabit or use the building or part of it for its intended purpose, or the destruction of the building or any part of the building, or a threat of collapse of the building or any part of the building.
I am therefore not satisfied that the alleged Defect 4 is a major defect.

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Cases Cited (3)